Friday, June 28, 2013

There is no question that China's enormous economic success in the last 40 years has brought forth a desire, both among the regime and among China's people as a whole, to resume the position of global dominance it enjoyed for two millennia. Ten years ago, this ambition would have seemed quixotic, except over the time-frame of half a century or more. Today, both because of China's economic successes and because of US economic, military and foreign policy blunders, it appears entirely realistic, and for many observers inevitable.

Whether China's advance is something to be welcomed depends entirely on what kind of regime China has as a hegemon. Two possibilities exist. First, China may continue its current growth on its current trajectory with its current regime, with its GDP per capita increasing from about 15% of the US figure to about 50%. At that point, the inefficiencies and corruption of China's current government system would prevent further progress towards the "frontier" affluence of the United States and the better-run European and Asian free-market economies.

However, to a Chinese regime concerned about its power position rather than the welfare of its citizens, this wouldn't matter. With a gross domestic product per capita half that of the United States, China would have a GDP in absolute terms about twice that of the US, since its population is four times that of the US.

In this case, you can imagine the Chinese playing the game of international power politics rather like the old Soviet Union, at least in its less malign days after Stalin's death.

The Nicaraguan canal, a $40 billion investment that is hopelessly economically unviable (as Panama's adjacent canal has annual revenues of only $2.4 billion) would be followed by a naval base. China would enjoy the enthusiastic cooperation of the anti-American Ortega government, which would have been propped up by Chinese money and when necessary information about its opponents. Daniel Ortega, in spite of having been around seemingly almost as long as Fidel Castro, is only 67 and in good health. Another 20 years of his rule would cement China's position in the Western Hemisphere.

China's economic extreme helpfulness to anti-Western regimes like Rafael Correa's Ecuador would also cement itself into long-lasting dictatorships under Chinese dominance. Countries like Venezuela and Argentina, with anti-Western regimes that got into economic trouble, would find China very helpful, although not all of these interventions would be successful. Africa would also be dotted with Chinese satrapies, not all of them entirely under its control, any more than all the Comecon bloc countries were entirely under the control of the Soviet Union.

Economically, free markets would dominate only in trade between the Western powers themselves and those few wealthy nations in East Asia who feared Chinese domination. Natural resources would be locked up by China in long-term contracts, backed by the threat of force.

Of course, this world would be thoroughly economically suboptimal, especially in terms of innovation, which would take place only in the Western economies. In particular, the peoples of countries dominated by China would find their existence a miserable one.

Nevertheless, China itself would benefit from its advantageous resources and cheap-labor manufacturing operations overseas. Since China would remain semi-capitalist and generally more efficient than the old Soviet Union, the Chinese hegemony would not run into the contradictions faced by the Soviet empire in the 1970s and 1980s. Certainly its wealth would prove ample to fund a massive military machine, which would engage in few overt acts of aggression but would exert Chinese dominance whenever the opportunity arose.

If this sounds like a resumption of the 1945-91 Cold War, it is.

China would not be economically communist (whatever its theoretical pretensions), and it's unlikely it to be ruled by an irrational monster like Stalin. Nevertheless, its economic autarky would impoverish much of the world, and its military might would be used to seize advantages from those Western countries foolish enough to elect a Jimmy Carter, Willy Brandt or Harold Wilson. And because of its size and relative economic efficiency, it would be a far more dangerous strategic opponent than the Soviet Union ever was.

2nd scenario?

The continuation of China's current government is not inevitable, and nor is the gradual progress of its economy to a hegemonic level. There are already signs of severe funds shortage in the Chinese banking system - the domestic interbank rate is up to 8%, a T-bill auction recently was only two-thirds subscribed and the People's Bank is trying to rein back credit hard, since bank loan volumes are already 23% above last year.

Since in 2006 there was reckoned to be $910 billion of bad debts in the Chinese banking system, and the anecdotes of entirely empty luxury office buildings are legion, there must be a chance that the country's financial system will collapse, revealing "malinvestment" - to use the Austrian economic term - not seen since the Tower of Babel proved the folly of over-investing in ziggurats.

In that event, the Chinese economy will enter a deep recession, with unemployment, bankruptcies and the other attributes of misery. That won't end the Chinese prospects for growth, but it will very likely destabilize the Chinese political system, causing unrest similar to that of Tiananmen Square in 1989, but with a much larger middle class and infinitely better communications.

There is no certainty whatever that such an event will produce a benign outcome; in general, street unrest doesn't, as was demonstrated two years ago in Cairo. However, if it produces a reshuffled authoritarian regime, we are simply back to Option 1 after a few extra years, while if it produces a socialist outcome Chinese economic emergence will be aborted and hegemony will be unaffordable, as it was for Mao Zedong.

If on the other hand, China reaches back into the mists of its history and produces a Confucian democracy, a kind of Song dynasty with elected emperors, then Chinese economic and political emergence will take a very different form.

Like the Song dynasty itself, which relied on barbarians for its military muscle and pursued a generally defensive international strategy (before being overwhelmed by the infinitely more aggressive but less agreeable Mongols), a neo-Song regime would regard the Nicaragua canal as simply a canal, abandoning it as hopelessly uneconomic or finishing it if it had by then become economic to do so. Unlike the current Chinese regime, it would be a thoroughly benign and cooperative member of the global order, like Germany or Singapore.

A neo-Song China would allow the free market to flourish, but without the crony capitalism and protectionism of the current regime. Thereby it would raise the incomes of its people far beyond the 50% of US incomes that would be the maximum for the current China, but towards and even beyond the "frontier" of the highest incomes possible with the current technological capability. It would be a pioneer in several areas of research, notably biotech, in which its Confucian heritage would allow it to experiment in areas taboo to Judeo-Christians.

A world with such a China would be close to its optimum. It would have lower military spending than today, because rogue states would be unable to destabilize a world dominated by the immensely wealthy neo-Song China and its equally wealthy but smaller friends in the US, Europe and East Asia. India would develop rapidly, with a wealthy free-trading China as its neighbor, and the poor countries of Africa and Latin America would also be brought up towards "frontier" levels.

Global population would peak and begin to decline as the world became wealthier, with neo-Song China representing about 20% of the world's population, but a rather larger percentage of its wealth, intellectual capability and civilizational potential.

Just as modern Germany is a highly prosperous and civilized member of the world community and a force for much good, so too a neo-Song China could play a huge role in making this a happier and richer planet. But whether we arrive at such a Nirvana, or whether we descend into a Manichean Cold War with the existing Chinese regime grown rich and arrogant is entirely in the lap of the gods, to be driven by political and economic developments that are currently unknowable.

wHoA!

h0t!

~hEy Y"all! DoN"t MiSs GsGf~!

Guaranteed to magically transform subscribers into superior intellectuals, worldly, pious, witty, cool, fun to be with, irresistable, au courant and all together with it. Amaze friends, confound enemies and revel in the envy and righteous respect of peers.